Functions of Money

0 74
Avatar for engr.utman
2 years ago

Money has got many forms over the ages from Wheels, Shells and even cows. Money has also evolved from Barter System when entities were traded in return of entities. Then someone came up with the idea of having a common entity to be used as money. Economists say money to be an entity that is a final return in exchange with services or goods.

All the form of money that are used since day one had some common Characteristics in them as listed below.

  • Money is medium of exchange

    I need grocery at home and I have money with me that is widely accepted by the grocers around me, I can have my required item in exchange of money. If I am quoting a transaction from some where in Africa, He would have used Shells as money and exchange of these Shells he would have bought his grains.

  • Money is a store of Value

    As stated above, if the one having Shell in Africa don't want to buy any thing right away but want to hold it for some days he will be able to use this type of money for exchange of any other thing as he desire.

  • Money is unit of account

    Any thing listed any where for sale is listed against specific money. It will be very difficult to have Gasoline in return of Pants and to have groceries in return of some litter of milk. Money is basically unit of account where every thing is accounted for against money in voyage

Money had brought many conveniences in our life. It was always there in one or other form since people started interacting with one another. Economists count money as one of the revolutionary inventions of all times as equally as Wheel.

Coinage:

Some early form of money were Commodities and they were considered precious as had their own value as well. Gold and Silver Coins are examples of these money. These metals were weighted equal in the form of coins and these coins were accepted almost every where in the world due to their own value as precious metal.

These coins started back around 1200BC and where replaced with representative currency notes as early as 16th Century AD.

Paper Currency:

In early days Paper currency was in reciprocal of coins, as they were not supposed to be Portable and many other operations issues. But early paper currency was used as Representative Currency, which actually represented the amount of gold against that currency. "The term Sterling Pound was actually equal to one Pound of Silver issued with the stamp of British Government". These were all example of Representative Paper Currency.

Then comes the modern day Fiat Currency, That actually don't have any intrinsic value in it neither it is backed by some real asset. It is only a legal Tender by the issuing government and that tender makes this worth in the market.

All the forms of money stated above were champion of their own age, they were replaced by the modern money as and when any of them sized to fulfill all the Functions of Money that are listed below.

  1. Durability :

    Money needs to be Durable with the passage of time. It may not be rotten or faint with the passage of time. For example, If Cheese is to used as money then it is not a durable money as it will not be the same with the passage of time similarly Gold is Durable in nature as money.

  2. Portability :

    Money should be portable thing that one can handle easily. It should be easily count able and transportable. If Corn was a money it would be very difficult to travel with bushels of Corn as compared with coins of Gold. Gold was not that much portable as compared with Paper currency.

  3. Divisibility:

    It is a basic function of money to be easily divisible. So that one can purchase a needle as well as car with the same money. Corn/Cheese were not good divisible money, similarly gold coin could not be exchanged against even a dozen of needles. Paper currency was better competitor then its predecessors against divisibility function of money.

  4. Uniformity

    Cheese block may be of different sizes while gold coins had better uniformity but still they lack a great deal in comparison with paper money. So being uniform for all, all the time is also a function of good money.

  5. Limited Supply

    In order have better market control money may have limited supply. Supply of Corn or Cheese could not be controlled so it would have Unlimited supply. With increase in mining sites of Gold, supply of gold also didn't met the supply criteria and its value got a big dip. Paper currency also lack this feature in specific as governments publish notes as they desire and make all the existing money in the market devalued. Best alternative of this feature of money is Cryptocurrency.

  6. Acceptability

    This is a greater challenge, making a currency popular enough that every one accepts it. Corn is requirement of almost every person but Cheese may not be. Similarly Gold is accepted every where on the face of the earth. But Euro is not accepted in African Grocery store, you have to change it with its regional counter part.

    In the world of Crypto currencies BTC has more acceptability than BCH, that is the only function where BCH is lacking a bit. Things are changing quite rapidly with the popularity of BCH, more and more people are accepting BCH now and retail merchant list if BCH is increasing on hourly basis so is its value in the market.

    Analysis on the basic of above listed Money functions, All the currencies are tabulated below.

Chart:

Final Word:

It is quite evident that as per Functions of Money, Crypto Currencies have already got a leap from all the conventional currencies, But when we compare the two bit coins BCH is little bit struggling with acceptability and has got all the other features up to the maximum level of advancement.

Let us contribute our part in this shift of Money from Paper/ Fiat money to Next Generation Digital Money. More power to all those are already working to promote the real digital currency and trying their level best to increase acceptability of BitCoin Cash at every outlet for better user experience. It will be quite unfair to credit @MarcDeMesel who is continuously funding and promoting this forum of read.cash.

Have a look at following articles as well

https://read.cash/@engr.utman/dinosaur-of-digital-currency-6ff4461c

https://read.cash/@engr.utman/digital-gold-vs-digital-currency-03218b4c

2
$ 0.07
$ 0.07 from @TheRandomRewarder
Avatar for engr.utman
2 years ago

Comments